FILE PHOTO: A staff wearing a face shield stands behind transparent plastic panels at a checkout counter of Japan's supermarket group Aeon's shopping mall as the mall reopens amid the coronavirus disease (COVID-19) outbreak in Chiba
FILE PHOTO: A staff wearing a face shield stands behind transparent plastic panels at a checkout counter of Japan’s supermarket group Aeon’s shopping mall as the mall reopens amid the coronavirus disease (COVID-19) outbreak in Chiba, Japan May 28, 2020. REUTERS/Kim Kyung-Hoon/File Photo

December 8, 2020

By Leika Kihara and Kaori Kaneko

TOKYO (Reuters) – Japan’s household spending rose in October for the first time in over a year, data showed on Tuesday, in a sign the economy is gradually emerging from the damage caused by the first wave of coronavirus infections.

Separate data showed the world’s third-largest economy expanded more than initially estimated in July-September, thanks to a rebound in exports and consumption from the slump caused by lockdown measures to contain the virus.

But a recent resurgence of infections is clouding the outlook, keeping policymakers under pressure to support a fragile recovery with massive monetary and fiscal stimulus measures.

Prime Minister Yoshihide Suga on Tuesday announced a plan to compile a 73.6 trillion yen ($708 billion) stimulus package that will include 40 trillion yen worth of fresh spending.

“Japan’s economy will keep growing in the current quarter but may stagnate or contract in January-March,” if an increase in infections force the government to take stronger steps to contain the virus, said Takeshi Minami, chief economist at Norinchukin Research Institute.

Household spending rose 1.9% in October from a year earlier, falling short of a median market forecast for a 2.5% gain but the first rise in 13 months.

The increase was mostly in reaction to a slump in spending in October last year, when households slashed consumption after a sales tax hike that took effect that month.

A government campaign offering discounts for domestic travel, which critics say may have helped spread infections, also propped up otherwise weak spending on services, the data showed.

Durable goods such as automobiles and refrigerators fared well, highlighting the contrast between robust demand for goods and continued sluggishness in service consumption.

Revised data showed the economy grew an annualised 22.9% in July-September, better than an initial estimate of a 21.4% expansion, putting the economy on somewhat better footing after suffering its worst postwar slump in the second quarter. However, a return to pre-COVID activity levels is expected to take some time.

Real wages fell in October for the eight straight month, separate data showed, suggesting households are not immune to the hit to corporate profits from the pandemic.

With the economic recovery fragile, the Bank of Japan is set to maintain its massive stimulus programme and consider extending a range of schemes aimed at easing corporate funding strains as early as its rate review next week.

(Reporting by Leika Kihara and Kaori Kaneko; Additional reporting by Daniel Leussink; Editing by Sam Holmes, Lincoln Feast and Kim Coghill)

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